Telecoms in focus as deal talk builds

Post-Fed market indicated to drift, AMZN set to drop

EmilyChurch

LONDON (MarketWatch) - U.S. stock futures were drifting early Thursday, indicating some expectation the stock market will look to consolidate the week's gains.

Telecoms will stay in focus as the deal talk continues to build in the sector after the SBC-AT&T hook-up announced Monday. January sales updates from U.S. retailers were rolling in.

Qwest Communications Inc.
Q, +0.10%
is in talks to acquire MCI Inc.
MCIP
for $6.3 billion, the Wall Street Journal Online reported Thursday. Verizon Communications
VZ, +0.08%
is also in talks with MCI but has not decided whether to bid, the report said. MCIP was marked up 1.9 percent in the speculative pre-open at $20.06. See full story in Wall Street Journal

The focus was on Amazon
AMZN, -1.32%
holding to the stock's tumble overnight after a disappointing outlook. AMZN was last at $34.91 on Archipelago, indicating a 16.6 percent plunge.

Broker comment was cautious. "While Amazon`s fourth quarter top line was strong, we believe disappointing bottom line results and the outlook for lower margins in 2005 suggest that the company continues to have difficulty driving higher profitability levels," Lehman Brothers concluded.

European stocks were holding close to the unchanged mark in midday trade; in Paris, French telecommunications maker Alcatel
ALA, +0.00%
dropped over 9 percent after the group abandoned its 2004 dividend and its outlook disappointed. The New York-listed stock was down 6.8 percent at $13.33.

Alcatel's forecast for sales growth in the range of 3 percent to 5 percent "disappoints us the most. We expected something around 7 percent," said Jean-Michel Salvador, a Paris-based analyst for Fideuram Wargny. See story

In the U.S. data, the number of initial filings for U.S. unemployment benefits dropped by 9,000 last week to a seasonally adjusted 316,000, the Labor Department reported. It marked the second-lowest number of new claims during this expansion.

Productivity in the U.S. nonfarm business sector slowed to a 0.8 percent annual rate in the fourth quarter, the smallest gain in nearly four years, the Labor Department also reported. Unit labor costs rose 2.3 percent in the quarter, the fastest growth in nearly three years

Whirlpool Corp.
WHR, +0.00%
said it's putting price increases into effect as a result of "an unprecedented material costs environment." Whirlpool projected 2005 earnings of $5.90 to $6.10 per share; Wall Street's average stands at $5.88.

PepsiCo
PEP, +0.30%
said it expects earnings of at least $2.55 a share for 2005, vs. the average analyst projection of $2.56.

Deutsche Bank
DB, +0.00%
Germany's largest bank, said Thursday it would cut full-time positions by a net 5,200 at a cost of 1.3 billion euros ($1.7 billion). Chairman Josef Ackermann has targeted a pre-tax return on equity of 25 percent for the bank, well above the 17 percent return achieved in 2004. See story

Shares of Royal Dutch/Shell
RD
dropped 1.8 percent in London after it cut its proven reserves estimates with an additional 500 million barrels of oil. But the oil major also doubled fourth-quarter adjusted profits and earmarked up to $15 billion in stock buybacks and dividends for investors in 2005. See story

Digital media manufacturer Lexar Media
LEXR
said it has postponed the release of its fourth quarter and fiscal 2004 earnings reports to after the market close on Feb 24.

Mining giant Rio Tinto
RIO, -1.12%
said it plans to return $1.5 billion of capital through share buy backs programs over the next two years. Looking ahead, the company said it sees strong demand continuing in 2005. Shares were down 1.3 percent in London after a strong run-up in London this week.

Broker calls

UBS raised its rating on Cooper Companies
COO, +0.00%
to "buy" from "neutral", citing its expectations for strong growth in the contact lens industry and expected synergies from the Ocular Sciences deal. The broker told clients it is confident in Cooper's integration strategy based on the success it enjoyed after the acquisition of Biocompatibles in 2002.

Deutsche Bank dropped its rating on casino operator Aztar Corp.
AZR, +13.64%
to "hold" from "buy," citing a likely slower-than-expected ramp up at AC Tropicana and the postponement of the company's development opportunity at its 34-acre site in Las Vegas

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